New Israel Securities Authority guidelines for analysts may turn out to be either yet another document that no one intends to truly obey, or else a revolutionary charter. Securities Authority chairman Moshe Tery, whose term expires in January, and his successor, have a rare opportunity to shape the analysis profession, which is expected to continue developing rapidly in the coming years, in parallel with the development of the Israeli capital market, and to instill international standards of conduct.
However, the ambiguities in the guidelines are liable to create quite a bit of confusion. The Securities Authority says that the guidelines will give analysts a set of questions and answers that will enable them to know precisely what is permitted and what is forbidden. Foreign travel, as things appear at the moment, will be forbidden, but what about dinner at an exclusive restaurant? What about a relaxing hour-long massage at a luxury hotel? What about a simple cup of coffee?
It is very hard to assess, and it will be even harder to enforce, the boundaries of what is permissible to receive in benefits. The borders are porous, and if the door is closed, someone will always find a way through an open window. The Regulation of Investment Advice and Investment Portfolio Management Law (1995), which applies to analysts, stipulates they may not receive benefits either directly or indirectly, with two exceptions. They may receive salaries and reimbursement for expenses.
Ambiguity applies here, too. Are expenses incurred for basic hospitality overseas from a company valid for reimbursement for expenses or not? The same question applies to salaries where all kinds of smart-alecks will undoubtedly figure out ways to bend the rules in their favor. It should therefore be remembered that enforcement of the new guidelines will be no easy matter. In fact, it will be almost impossible, which means that the guidelines can serve at best as a deterrent. In other words, one or two analysts caught taking a benefit will be made an example for the others. In the world we live, to put it delicately, the analysts are not particularly brave.
This is the place to note that the guidelines do not apply to analysts who do not send their recommendations to more than five people, and who publish their surveys only in the media. The question is: Are investors less influenced by these analysts than other analysts? The answer is not known.
Finally, what about journalists? Certainly, you’ve been waiting for this question. Journalists also frequently travel at companies’ expenses, and what we write also sometimes influences investors. This is not a healthy situation either, even though most journalists try at least to provide due diligence by stating that they traveled abroad at the expense of the company covered, and allow the reader the right to decide whether or not to believe in the story.
Published by Globes [online], Israel business news - www.globes.co.il - on September 18, 2007
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